Abstract
Students who are trained in standard macroeconomics often prioritize economic efficiency over other values, such as justice. Most of them believe that to achieve higher efficiency, a society needs to sacrifice economic justice. In other words, there exists a tradeoff between equality and efficiency. In my Principles of Macroeconomics class, I therefore create lectures and assignments including self-reflections and group discussions to persuade students to question the value of economic efficiency and justice. The assignments raise the awareness of students about economic justice as another essential value in society. The goal is to encourage students to rethink macroeconomic policies critically, reevaluate their moral biases, and cultivate their moral compass when dealing with ethical dilemmas.
1. Introduction
The science of economics has been always and everywhere founded on ethics. Adam Smith, the father of economics, was first of all a moral philosopher. In the past few years, significant attempts have been made to revive ethics and moral philosophy in economics teaching (Wight and Morton 2007; Davis 2023; Sandel 2013). Scholars have argued that this would be a return to the root of economics as a moral science (DeMartino 2011; Dutt and Wilber 2010; Hausman, McPherson, and Satz 2016; Wight 2015).
Standard macroeconomics prioritizes efficiency, which is furthermore presented as a value-neutral goal for any policies. Macroeconomic efficiency entails maximizing GDP growth, controlling inflation, or minimizing unemployment. Other ethical concepts, such as social justice and fairness, are usually ignored in macroeconomics classrooms. Students therefore believe that the economic style of reasoning, with its focus on efficiency, is the only way to think about economic policies. In this way, “Thinking like an economist” has become the new norm for policymakers. However, economic-style reasoning has built-in values. It values cost-effectiveness or bang for the buck. This may sound unbiased until it competes with other social values.
Okun (2015) was an economic adviser to President Lyndon Johnson. His book Equality and Efficiency: The Big Tradeoff explores the moral boundary between the markets and the community. He proposed that economic efficiency is not only the social goal we should aim for. We must also achieve equality even though this would mean we can accomplish less social efficiency. A good society should provide fundamental rights freely and equally to all citizens regardless of economic status (Frey 2009: 183). Also, for greater equality, a society must sacrifice some economic efficiency. His metaphor of the “leaky bucket” explains that the bucket leaks when there is a redistribution from the rich to the poor (inefficiency). Okun did not support the extreme case for perfect equality. However, he would choose a leakage rate somewhere in between the extremes. Unlike the macroeconomics we learn today, Okun considered both equality and efficiency important in a society.
In her newest book Thinking Like an Economist: How Efficiency Replaced Equality in US Public Policy, Berman (2022) documents the institutionalization of economic style reasoning and the marginalization of alternative social values such as equality, rights, and universalism. The efficiency-oriented type of reasoning, as she argues, has been more prevalent among the Democrats rather than the Republicans in the United States since the 1970s. This obsession with efficiency prevents more progressive, radical policies from emerging, such as the financial reforms after 2009, student debt cancellation, or even the Green New Deal.
Justice does matter (Sen 2011; Sandel 2009; Rawls 1971). And this essential value should be scrutinized even in macroeconomics class. To achieve this goal, I created a series of assignments and lectures to expose the students in my Principles of Macroeconomics class to ethical analysis in macroeconomics. In this short article, I explain the delivery of my teaching materials that aim to raise awareness of the shortcomings of macroeconomic analysis in terms of its ethical bias and ignorance of economic justice. We dissect the tradeoff between justice and efficiency in macroeconomic policies. Students analyze macroeconomic policies that have an underlying emphasis on efficiency. They later learn to evaluate the policies based on the concepts of justice and economic equality, defined as the fair distribution of economic outcomes, usually in terms of monetary values. They learn that the efficiency-equality tradeoff is not a reliable tool and, at times, false. They learn that economic efficiency is also a value-laden concept. Choosing efficiency over justice is not the only “right” answer. Both efficiency and fairness are not mutually exclusive. And the concept of justice is equally important. Students also learn how to evaluate economic justice.
2. Structure of Lectures and Assignments
2.1. Before the class lecture
This topic’s delivery combines web-based writing assignments, lectures, and in-class group discussions. At my university, Principles of Economics: Macroeconomics (ECN 202) is one of the two principles of economics courses. The prerequisite for this course is Principles of Economics: Microeconomics (ECN 201) or the equivalent. ECN 201 and 202 are part of the general education (Gen Ed) program, where students must take a minimum of three credits of coursework for each of the twelve Student Learning Outcomes. As a result, most of the ECN 201 and 202 students are noneconomics students. In Fall 2023, of the two sections of ECN 202 that I taught (eighty-nine students combined), only three of the students were economics majors. The rest of them were from various majors, including political science, languages, psychology, business, environmental science, pharmacy, engineering, and computer science. Most students (sixty-four out of eighty-nine) were either freshmen or sophomores.
The first half of this course covers conventional concepts in macroeconomics, such as GDP, inflation, and unemployment. In this course, students need to submit three reflections: a prereflection at the beginning, a midterm reflection, and an end-of-course reflection. In the midterm reflection, there are three questions. Students need to write down their responses and submit them on our online learning management system (LMS) called Brightspace. The last question is about the equality-efficiency tradeoff (see appendix A on the first question for full detail). The question asks students to indicate whether they agree or disagree with the statement by assigning a number from 1 (highly disagree) to 10 (highly agree) and explain why. The goal of this question is for students to reflect on what they think about the equality-efficiency tradeoff before we discuss the issue in class. The statement is the following: In this world, there is a tradeoff between equality and efficiency. No society can achieve both simultaneously. For example, if a society tries to impose higher income taxes, economic growth will decline, and society will be worse off. If a society wants higher efficiency (economic growth), it must accept higher inequality.
The answers for the midterm reflection in Fall 2023 varied. For students who agreed with the statement, many of them noted that societies need to prioritize efficiency over equality and most societies cannot have both simultaneously. For example, one comment read, “I would rate it a 10. I completely agree with this quote because there is a compromise in our world between equality and efficiency. No civilization can do both at the same time. If a society tries to raise income taxes, economic growth would slow and society will suffer.”
Many of them raised the issue of how equality may hurt incentives and efficiency. A more equal society, in their view, may reduce economic efficiency and economic growth. One student said: I would rate it as an 8. While this topic is debatable and offers only one perspective, I do agree with the majority of it. I believe that if society imposes higher income taxes, economic growth would decline in return, because higher taxes will cause more people and businesses to become discouraged in terms of investing and saving money, resulting in a less productive economy. I also think that in order to receive higher efficiency regarding economic growth, individuals must see people in society receive more income in order to be motivated to work harder and take risks.. . . An example I thought of to properly support this claim includes general tax cuts. I believe tax cuts in an economy would lead to people of high-income experiencing benefits and a widening of the wealth gap. In addition, people of high-income may also begin to invest more of their money as their taxes are lowered, leading to a boost in economic productivity.
Figure 1 shows the summary of responses from the midterm reflection in Fall 2023. There were 68 responses. From 1 to 10, the average of responses was 6.83, the median was 7, and the standard deviation was 2.15. Most students tended to agree with the tradeoff and the statement. Of the 68 responses, 41, or 60.3 percent of the class, chose numbers between 6 and 10. These results agree with Hole (2013), who used the game experiment and found that when compared to engineering students, economics students tend to put less weight on fairness. Faravelli (2007) used survey data from freshmen and senior students of economics and sociology. The study also found the initial result that economics students were less likely to support fairness.
Responses to the last question from the midterm reflection.
2.2. The class lecture
The main lecture on economic justice and macroeconomic policies came during the last two weeks of the class before the final review. We always spent around 1–2 classes on the topic (a class of 75 minutes). The class started by discussing the normative and positive aspects of economics. We concluded that economics has nothing positive. Even when we talk about numbers or empirical data such as GDP, it is based on our assumptions and judgments about what and how to count economic activities. Any numerical calculation or data gathering requires value judgment and normative decisions of what to include and exclude. In other words, all economics is normative. We then began discussing Okun’s equality and efficiency tradeoff, its historical context, and its implications. Next, the first activity was introduced. I used the pair-and-share that students discussed with their colleagues for the two questions listed in appendix B before they shared with the class. This activity ensures that students understand the mechanism of the equality-efficiency tradeoff. Students also read Rodrik (2014) before the class.
The lecture continued. I explained the reasons for and against the tradeoff. I covered the argument on incentive and productivity that asserts perfect equality can deteriorate an incentive to make people work hard. The more free riders in society, the less effort people want to invest in their jobs. On the other hand, there are some arguments against the tradeoff. In short, better infrastructure, social safety nets, education, and healthcare could improve the well-being of people evenly. They could also increase the incentive for people to work harder and more effectively. The prime examples are Nordic countries, such as Sweden, Denmark, or Norway, where economic growth has been solid while inequality has been relatively low. In addition to verbal arguments, I showed the empirical evidence of the tradeoff has been far from conclusive. Many studies have even showed that economic growth and equality go together (Kenworthy 1995; Atkinson 2015; Thorbecke 2016; Berg and Ostry 2011; Baselgia and Foellmi 2022; Furman 2016).
Lastly, I began to present the issue regarding social justice through the lens of ethics and philosophy. Most people understand that macroeconomics emphasizes only efficiency, for example, GDP, unemployment, and inflation. Actually, those efficiency measures also have ethical foundations (Wight 2017). Both fairness and efficiency are value-laden and require ethical reasoning to analyze. I presented what economic justice is and how to evaluate it. Following Wight and Morton (2007), there are two approaches to assessing economic justice: process (procedural justice) and outcome (distributive justice). I encourage students to question both perspectives. For people who prefer procedural justice, we question if the process is intrinsically fair. Examples are competitions between small online retailers and giant companies like eBay and Amazon. On the other hand, we questioned people who prefer distributive justice on how to quantify the fair outcome we want. The last concept students learned was the “veil of ignorance” following Rawls (1971). I define the veil of ignorance as when you do not know what your own specific situations will turn out to be—whether you will be rich, poor, strong, disabled, and so on.
The last activity was a group assignment. I asked the students to form groups of two or three and discuss and answer the questions found on the worksheet in appendix C. Vignettes are deemed better for understanding complex situations than abstract lectures (Goldstein and Weber 1995). Also, vignettes tend to reduce personal stakes taken at specific problems, so students can express their thoughts more freely. For this hypothetical scenario, we looked at the macroeconomic policy choices. The conundrum focuses on two possible policy packages. This hypothetical scenario raises the issue of efficiency and justice. Whereas policy package 1 can deliver higher efficiency in terms of overall unemployment reduction, policy package 2 results in fairer results between men and women in terms of unemployment.
This group assignment exemplifies the real-world scenario in which most policy choices involve ethical dilemmas between efficiency and equality. Students should know the moral implications and understand how to evaluate and justify them. They learn that the trade-off between efficiency and fairness has been empirically false. Both efficiency and fairness are both ethical concepts and require an ethical lens to analyze. We start by identifying which package can deliver the more efficient result and which package can deliver the fairer result. We seriously ask ourselves which package we should pick if we were men or women. Lastly, we apply the “veil of ignorance” concept to see which policy package a group would choose and why.
2.3. After the class lecture
After the last class, individual students must submit the end-of-course reflection online on Brightspace. For this reflection, all three main questions are about ethical analysis. All of them were from the in-class discussion we had earlier. The questions can be found in appendix A.
On the first question, students must reevaluate the same question they answered in the midterm reflection. From figure 2, students’ responses showed that the average of students who supported the idea of the tradeoff decreased from 6.83 to 6.53 in Fall 2023. The median also went down from 7 to 6.5. Only 50 percent of students this time (34 of 68) chose between 6 to 10. Similarly, Sosin and McConnell (1979) collected the survey at the beginning and at the end of the introductory economics course and found that students shifted their attitudes toward income distribution to become more egalitarian.
Responses to the first question from the final reflection.
Many students commented that they began to feel less confident about a tradeoff between equality and efficiency after being exposed to some counterexamples. One student said: I would rate this statement as a 2, which is a little lower than what I rated it in my Midterm Reflection. I changed my mind this time around because I disagree with the statement more than I did during the time I wrote the Midterm Reflection, because I have learned more about the tradeoff theory and have come to disagree with it more. Since I wrote my Midterm Reflection a few weeks ago, we have done more research into this theory and have examined what economic policies other countries have implemented. Other countries around the world, for example many European countries, have found success in growing an economically efficient economy without increasing inequality. . . I personally believe equality is far more important than economic efficiency, and that countries should put their people first rather than profit. Therefore, I would say I disagree with this statement more so now than I did at the time of the midterm reflection.
Some students realized that efficiency is an ethical concept and should not necessarily be prioritized as the first and foremost goal for societies. One student commented: I would rate this statement a 6. I agree that there is sometimes a tradeoff between equality and efficiency, but not always. In the midterm reflection I originally rated this statement a 9. I have changed my mind after learning more about Okun’s tradeoff in class and how it is not necessarily always the case. There is weak evidence to support this idea that efficiency comes at the cost of equality and vice versa. There are plenty of countries that have high inequality and low economic growth, such as South Africa and Bolivia, and many countries have low inequality and high growth, such as Sweden and Norway. Efficiency is also an ethical concept that can be defined by more than one thing, and it is a moral dilemma to say that efficiency is more important than equality or that equality is more important than efficiency.
However, many students have not changed their minds and still believe there is a tradeoff between equality and efficiency. Also, they still believe that it is efficiency that public policies should target. One student commented that: I completely agree with this statement. My number is 10. If you want to tax everyone the same and no matter how people work everyone will be taxed the same, this will cause efficiency to go down. . . We need income inequality in order for there to be people who try hard, work efficiently, and do harder jobs. This is good for society because these jobs need to be done. I understand inequality but the people who are paid the most and taxed the least create jobs, own businesses we use every day, and they innovate; without them there will be less economic growth. I have not changed my mind on this statement.
On the last question, I asked students to choose the policy package they like behind the “veil of ignorance.” This question provided them with a thought experiment on what to decide if they did not know which gender they would be. Of 73 respondents, 40 (54.8 percent) preferred policy package 1, and 33 (45.2 percent) preferred policy package 2. Even though the number of students choosing policy package 1 is higher, more students chose policy package 2 compared to the answers they gave during the group discussion in class. Konow (2017) also found similar results that the exposure of students to the view of fairness has little impact on how they view the issue.
Many students understood the uncertainty of this situation, where they may be either gender. One student said: If I had to choose one package behind the veil of ignorance I could choose the second package, as even though the first package shows less unemployment for men and women, the men receive less unemployment. The second package is more “fair” as behind the veil of ignorance it is unknown which “gender” I would be and as such would want the same treatment as the opposite gender.
This thought experiment reiterates what Rawls tries to argue: that in an ideal world, most people would prefer the policy results where the benefit goes to the weakest in the society.
Some students even went further and claimed that social justice can also be a priority in society, not efficiency. One student claimed: If I had to choose a package without knowing my social standing, I’d go with Policy Package 2. This preference stems from its more equitable approach to lowering unemployment across groups. Even if it is inefficient, the focus on fair distribution of resources and education investment is associated with a more inclusive and sustainable approach to economic development, which would be my priority in a society where my position or status is unknown.
However, several students chose package 1 because it offers equal treatment or opportunity between two industries. The package spends equal money on manufacturing and education. For example, one student commented: I would choose the first package because it provides both male and female dominated industries with an equal amount of funding. When behind the veil of ignorance, you have no say in who you are and what your situation looks like. Naturally, one would choose the package that promotes equal funding and seemingly equal opportunity to ensure a sense of security regardless of what your position may be.
This way of thinking reflects procedural justice or equal opportunity between options.
It is important to note that previous questionnaire studies of ethics education manifested several kinds of pitfalls when it came to the result interpretation (Konow 2017: 194). And this study is not an exception. I need to address some limitations here. First, this study takes the students’ opinions before and after the lecture classes on ethics. Even though no students dropped out during the last two weeks, some students were absent from the lectures. Those who were absent were still able to submit the final reflections. Second, the reflections students submitted were not anonymous, which might incentivize students to revise their answers to conform to the class lectures and expectations. To address this problem, students were told they would receive full credits as long as they provided detailed and thoughtful answers. Third, there is a positive bias in favor of finding the effect as the second reflection taken after the class lectures. However, most results from previous studies showed that the effect was usually small or even none (Konow 2017: 195). I also found small positive results in this study.
3. Conclusion
Conventional economics teaches students to value economic efficiency over other social values, including economic justice. Most economic analyses ignore normative questions, especially on equality, while treating economic efficiency as a value-free measure. This way of thinking needs to be reexamined critically. In this article, I outline the assignments designed to raise awareness of economic justice in macroeconomics. The assignments persuade students to question the concept of efficiency and ask critically why it should be ranked higher than other values, such as equality. The assignments raise awareness of the importance of economic equality. The results from my class in Fall 2023 show that students seem to value economic equality more and doubt the equality-efficiency tradeoff. Some students agree that economic equality should be at least as significant as economic efficiency.
We now live in an age of inequality in terms of race, class, and gender. In the past few years, there have been attempts to introduce ethics in economics classes, especially microeconomics. However, the introduction of ethics is not easy for macroeconomics class as the subject deals with public policies, not individual choices. In this article, I aim to introduce an example of how to integrate the concepts of justice, fairness, and efficiency-equality tradeoff based on scenario analysis and discussions in the Principles of Macroeconomics class. In the future, I look forward to seeing the concepts of justice and equality applied more to other dimensions of public policy investigation in macroeconomics. This can be about the relationship between GDP and gender inequality, poverty eradication and income distribution, or fiscal stimulus and racial inequality, among many others. Bringing ethics into macroeconomics shall make the class relevant to the real world and make economics a moral science again.
Footnotes
Appendices
Acknowledgements
I want to thank Dr. Mary Wrenn and Dr. Andrew Mearman for their valuable comments and suggestions. The usual disclaimer applies.
Declaration of Conflicting Interests
The author declared no potential conflicts of interest with respect to the research, authorship, and/or publication of this article.
Funding
The author received no financial support for the research, authorship, and/or publication of this article.
1
The veil of ignorance is when you do not know what your own specific situations will turn out to be—whether you will be rich, poor, strong, disabled, and so on. For this example, you vote for the policy BEFORE they (to whom do you refer?) (or god) assign you the gender you will be or the industry you will work in.